Equity Bottom-Up: Z Holdings, Hoya Corp, CSC Financial, Starhub Ltd, Biocon Ltd, Ping An Insurance (H), Delta Electronics Thai, Hana Financial, Central Retail and more

In today’s briefing:

  • Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint
  • Hoya 1Q Results: Another Quarter Impacted by the Pandemic but Recovery Is Ahead
  • China Brokers: Regulator Encourages M&A Among Brokers and Mutual Fund Houses
  • Starhub (STH): Suffers from Seniors Go Digital?
  • Biocon: Covid-19 Respite Uncertain
  • Ping An Insurance – 1H20 Preview
  • DELTA: Covid-19 Impact Surprisingly Turned Positive
  • Hana Financial: Scores Well, Is Cheap, but Some Doubts Linger
  • Central Retail (CRC TB) – Buy for Looming Recovery

Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint

By Supun Walpola

  • In our previous notes, we have continuously questioned Z Holdings (4689 JP)’ strategy of aggressively trying to expand its user growth in the maturing Japanese e-commerce market, highlighting that both Z’s new e-commerce platforms, PayPay Mall and PayPay Flea Market (which were launched last October), have struggled to get new users on board. 
  • Both PayPay Mall’s and PayPay Flea Market’s total website visits increased in 1Q FY03/21, however, falling download rankings and lagging engagement matrices suggest that both platforms are still struggling. We analyse PayPay Mall’s and PayPay Flea Market’s web traffic data and app rankings for 1Q FY03/21 below. 

Hoya 1Q Results: Another Quarter Impacted by the Pandemic but Recovery Is Ahead

By Shifara Samsudeen, ACMA, CGMA

  • Hoya reported its 1QFY03/21 results yesterday (28th July) which saw YoY decline in both revenue and operating profit due to the Covid-19 outbreak. The company’s earnings have been negatively impacted for the second consecutive quarter due to the ongoing pandemic.
  • However, the company’s revenue and operating profit beat consensus estimates by 1.2% and 62.2% respectively. According to Hoya, it has made significant temporary cost reductions to limit the impact of the reduction in marginal profit.

JPY (bn)

1QFY03/20

1QFY03/21

% YoY

Consensus

Actual Vs Consensus

Revenue

140.8

109.3

-22.37%

                               108.0

1.19%

Operating Profit

38.5

31.3

-18.70%

19.3

62.18%

OPM

27.34%

28.64%

 

17.87%

 

Pre-Tax Profit

37.0

31.9

-13.78%

24.0

32.75%

Pre-tax Margin

26.28%

29.19%

 

22.25%

 

Net Income

30.1

25.6

-14.95%

22.8

12.28%

Net Margin

21.38%

23.42%

 

21.11%

 

Source: Company Disclosures, Cap IQ
  • The Covid-19 outbreak has negatively impacted the Lifecare segment’s earnings which was partially offset by strong performance of the IT segment whose performance was driven by increasing demand for EUV mask blanks.
  • In our previous insight on the company, we highlighted that the company’s eyeglass/contact lenses revenue will be affected in 1QFY03/21 (June quarter) due to the ongoing Covid-19 outbreak which has caused lockdowns and restrictions of activities resulting in store closures.

China Brokers: Regulator Encourages M&A Among Brokers and Mutual Fund Houses

By Roger Xie

China’s top securities regulator is encouraging mergers and acquisitions among brokerages and mutual fund houses, the state-run China Securities Journal reported last week. The China Securities Regulatory Commission (CSRC) aims to solve the problem of competition among industry peers with the move, and the top securities watchdog also supports launching employee stock ownership and equity incentive plans. We believe it is policy maker’s intention to have a more institutionalized and internationalized industry, which will better serve China economic transformation. Based on valuation and favorite policy, brokerage and asset managers are in sweet spot for investors. 

According to Securities Association of China, there are 98 licensed brokerage firms in China. In 2019, the top-10 brokerage firms’ revenue only account 46% of industry-wide revenue. Their relevant profits account about 60% of industry-wide profit. Interestingly, top-10 brokerage firms in US account more than 70% of revenue and profit for the industry. We believe there are plenty of room for further consolidation in brokerage business. It is also reported in April that Citic Securities (H) (6030 HK) and CSC Financial (6066 HK), along with their major shareholders CITIC Group and Central Huijin, have started due diligence and a feasibility study on a potential merger of these two brokers. If the speculation has been realized, the combined CITICS and CSC Financial will become the largest brokerage firm in China with asset exceeding RMB 1trn. It will become No. 1 player in brokerage, margin financing, investment banking and asset management.

CSC Financial (6066 HK) is our top pick in Chinese broker sector. CSC Financial was ranked 4th by equity and bond underwriting ranking. It has a dominant position on the IPO underwriting volume and pipeline in ChiNext board, which has direct benefits from the ChiNext board reform. 


Starhub (STH): Suffers from Seniors Go Digital?

By Henry Soediarko

TPG Telecom Ltd (TPM AU) latest offering in Singapore, “Seniors Go Digital” commercial mobile plan for senior citizens at a promotional price of S$5 until 31 July 2021 sounds like a doomsday scenario for Starhub Ltd (STH SP) but it is worth mentioning that TPG does not have any coverage in the underground yet which may cause some (older) people to be confused. 

The financial impact is quite limited, and expecting a further short term pain in REITs due to the prolonged COVID-19, yield-hungry investors should switch from REITs to Starhub that still pays 7% yield at an undemanding valuation.  


Biocon: Covid-19 Respite Uncertain

By Nitin Mangal

Shares of Biocon Ltd (BIOS IN) escalated almost by 5.5% on Tuesday, 14th July after the Drugs Controller General of India (DCGI) approved to market Itolizumab for treating moderate-severe Covid-19 patients. However, the tables turned quick when the National Task force rejected the drug to be included in the clinical management protocols for Covid-19, causing a disheartening plummet of over 7% since Thursday. Given the current pandemic situation, this roller-coaster ride has created a haze-like situation for the company, filled with uncertainties.


Ping An Insurance – 1H20 Preview

By Thomas J. Monaco

*Weak Results Ahead: Ping An Insurance (2318.HK) [Ping An] is set to report 1H20 results on August 27, 2020. We anticipate COVID-19 to negatively impact Ping An’s multiple lines of business, which should aggregate to a YOY net income decline of 5% to CNY 69.8 bn, by our calculation; and

*Struggles By Insurance Unit: The slowdown in new business volume is anticipated to weigh on Ping An Life’s bottom-line. As such, we anticipate a 35% decline in the value of new business during 1H20. Credit insurance exposure is likely to be a drag down performance again, and Ping An P&C’s 1H20 combined ratio will be challenged and is due to increase to a tad under 100% – or barely profitable operationally.


DELTA: Covid-19 Impact Surprisingly Turned Positive

By Research Group at Country Group Securities

We maintain HOLD rating on DELTA with a new 2021E target price at Bt84.00, from Bt56.50, derived from 21.2xPE’21E, which is +1SD of its 5-years trading average.

•DELTA reported 2Q20 net profit at Bt2.0bn (+132%YoY, +136%QoQ). driven by cloud storage and data center-related businesses, as Covid-19 situation spurred work-from-home related services demand.
•We revised up our 2020-22 net profit forecasts by 105%, 23%, and 20%, respectively, in response to solid 2Q20 performance.
•DELTA revenue would be even more solid in 2H20E, given the recovery in EV related products. However, 2H20E earnings should slightly soften due to normalization in demand for data center-related business.
•On Friday, DELTA also announced a disposition and acquisition of the investments in the associated companies. We estimated it has limited at less than one percent of DELTA’s assets and earnings.

We think DELTA’s impressive performance has been largely priced in the 67% stock rally in July.

Background: Delta Electronics (Thailand) Public Company Limited, The company is a subsidiary of Delta Electronics, Inc. Delta Thailand is a manufacturer and exporter of power supplies and electronic equipment and parts, the company is one of the world-leading producers of power supplies and electronic components that include cooling fans, EMI filters, and solenoids. At present, the company has 2 main plants in Thailand one each in India (Rudrapur and Krishnagiri), Slovakia (Dubnica nad Váhom and Liptovsky Hradok) and Myanmar (Yangon).


Hana Financial: Scores Well, Is Cheap, but Some Doubts Linger

By Paul Hollingworth

Hana Financial (086790 KS) delivered positive fundamental momentum at Q220 on a LTM basis. It is not so common these days to find a bank which is actually improving its Profitability. Enhanced Asset Quality, improved Liquidity, stronger Provisioning, and better Efficiency were other highlights. Some erosion of Capital Adequacy was a negative.

While Asset Quality improved, it was somewhat of a surprise that Asset Write downs, mainly Loan Loss Provisions, expanded so forcefully.

In addition, Earnings Quality could have been better given the weight of “non Core Income” as a % of Pre-Tax Income. This exerts a downward pull on the CIR and inflates the bottom-line. 

“Core Income” was basically flat as “non-interest income” gains, from trading of securities and plenty of “other” items, partially offset a decrease in Net Interest Income.

Valuations are, however, far from dear and RSI is low enough. FV, PBV, and Dividend and Earnings Yields stand at 3%, 0.31x, 7.3% and 28%, respectively.

The PH Score™ is elevated at 10, supported by the valuation variable in part.

So on paper, Hana commands a trifecta of a low valuation, a subdued RSI, and a high PH Score™.

The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage as well as a valuation variable. Scores lie between 0 and 10, with higher scores representing more positive signs. The PH Score™ was back tested over 2007-17 for global banks and conclusively shows progressively higher returns across quintiles ranked by Score. 


Central Retail (CRC TB) – Buy for Looming Recovery

By Angus Mackintosh

Central Retail (CRC TB) has been probably been the most impacted retail player in Thailand from COVID-19, given its heavy exposure to department stores, which were forced to close for a period.

CRC also has significant exposure to Italy through its department stores there, which were also closed for a time during that country’s lockdown. 

The company’s other retail exposure in Thailand through CP Foodhall, Tops, and Family Mart have proved relatively resilient, whilst BIGC in Vietnam has also fared well and should recover quickly. 

Now that Thailand is gradually emerging from the pandemic, we would expect a much better performance in 2H2020, with tailwinds from Italy and Vietnam. 

A looming recovery is not being reflected in the stock price, which has been nudging new lows since its IPO and underperforming its retail peers. Central Retail (CRC TB) trades on 25.0 FY21E PER and 21.0x FY22E PER, with forecast EPS growth +90% and +18% for FY21E and FY22E respectively. It also trades on 8.1x FY21E EV/EBITDA, which is a significant discount to peers. We would see this as a high-conviction recovery play. 


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